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Letters of engagement

payrollpropayrollpro Trusted RegularHampshire/SurreyRegistered, Working Together with HMRC Posts: 418
Would welcome some comments on this one.

Three person practice, two FCCA's as accounts partners and me as tax and payroll partner. Like many others we get a lot of small, two person Ltd's and most ask for Ltd accounts and tax filing plus two SA returns.

Canvassing local accountants we find the general view is that this is one letter of engagement with three strands and apparently it is ok for the Ltd company to pick up the charges for the whole service.

I have challenged this set up on the grounds that the company and the two directors/shareholders are three distinct legal persons, only the financial affairs of the Ltd company can be shared with the other two and the cost of accounting and tax advice for personal returns is disallowed for their returns. If the company picks up the tab then its a benefit in kind?

I know this is a pedantic way of looking at things but a call to AAT was unproductive, they referred me to the ICAEW helpline as a technical matter. They would not help as it is not a technical matter, to them and in any case ICAEW does not mandate the use of letters of engagement for members so have no view on the structure of them - weird, but that's what she said! Apparently ACCA merely suggests members in practice ought to have contracts with clients.

Our PII legal people predictably insisted on contracts with everyone, all issue and any pets in the building when the contract arrives!!

I'm not overly fussed as I can get round it all easily but my surprise is that no one seems to have an official view on it and it's one of those problems which I can't out of my head, simply because no one seems to be helping very much.

What do others do?

Payrollpro

Comments

  • groundygroundy Trusted Regular Registered Posts: 495
    Would agree with general view re engagement letter, however we would provide seperate invoice and if paid by company the directors tax return charge would be treated through directors loan account
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    payrollpro wrote: »
    Would welcome some comments on this one.

    Three person practice, two FCCA's as accounts partners and me as tax and payroll partner. Like many others we get a lot of small, two person Ltd's and most ask for Ltd accounts and tax filing plus two SA returns.

    Canvassing local accountants we find the general view is that this is one letter of engagement with three strands and apparently it is ok for the Ltd company to pick up the charges for the whole service.

    I have challenged this set up on the grounds that the company and the two directors/shareholders are three distinct legal persons, only the financial affairs of the Ltd company can be shared with the other two and the cost of accounting and tax advice for personal returns is disallowed for their returns. If the company picks up the tab then its a benefit in kind?

    I know this is a pedantic way of looking at things but a call to AAT was unproductive, they referred me to the ICAEW helpline as a technical matter. They would not help as it is not a technical matter, to them and in any case ICAEW does not mandate the use of letters of engagement for members so have no view on the structure of them - weird, but that's what she said! Apparently ACCA merely suggests members in practice ought to have contracts with clients.

    Our PII legal people predictably insisted on contracts with everyone, all issue and any pets in the building when the contract arrives!!

    I'm not overly fussed as I can get round it all easily but my surprise is that no one seems to have an official view on it and it's one of those problems which I can't out of my head, simply because no one seems to be helping very much.

    What do others do?

    Payrollpro

    I spotted a good article on letters of engagement on aweb that you may find useful:

    http://www.accountingweb.co.uk/article/engagement-letters-get-details-right/533210
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,441
    We generally charge to the limited company by increasing the ltd co charge for accounts etc and the directors tax returns not mentioned on the invoice i.e. just done for free.

    They are all grouped together in one letter of engagement but with separate signing for the directors to show they have agreed to the terms relating to them.

    If however, the directors have more income than just Employment + dividends and interest then we charge them separately with their own LOE
    Regards,

    Burg
  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    Have a read of 20.8 and 20.9 in the Tolley's handbook (2012/13 version) if you've got access to one (or look up 'accountancy expenses' in older version)- it does give general guidance on this.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    If you invoice the Ltd Co specifically for a directors TR, then I charge it to the DLA (not a BIK) and don't claim the VAT.

    If you have one fixed fee with directors tax return for 'free' then I don't think there is anything to be concerned about - unless the director has complex personal matters for which it would be logical that a separate charge would be made by the accountant. For a bog standard directors return with salary, dividends plus a bit of bank interest, I have no problem with accountants offering this as a free extra with a set of company accounts.

    As to the engagement letter, I usually do one letter to cover all parties, unless they are unconnected individuals (i.e. business partners not domestic partners/ family) with differing personal tax affairs.
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